August Total Bankruptcy Filings Mark 37^th Consecutive Month of Year-Over-Year Increases

August 2025 saw 47,922 bankruptcy filings, a 5.94% from last year and the 37^th consecutive month of year-over-year growth. Although the growth in August filings represented the second-lowest percentage increase this year, it reflected a remarkably steady pattern of increases across all major bankruptcy chapters.

A Closer Look by Chapter

The pattern of filings by chapter was comparable to trends seen for well over the past year.

The number of new Chapter 7 cases, in which consumers and businesses liquidate their assets, went up by 8.05 percent compared to August 2024. These cases, which historically comprise more than 60 percent of total filings, generally include debtors in the most dire financial straits. With government money long gone, along with the pandemic, these debtors usually have fewer options and less cash to negotiate with creditors.

Chapter 13 debtors, who typically repay a portion of their debts over five years, filed only 2.50 percent more cases than last August. If Congress passes pending legislation this Fall to increase chapter 13 debt limits (see below), then more chapter 13 cases will likely be filed. This may be especially true on both coasts where high home mortgage debt often exceeds current chapter 13 statutory limits.

Chapter 11 cases, which are usually filed by companies attempting to restructure their debts and stay in business, went up by 9.85 percent. Even though that increase is a far cry from the nearly 90 percent explosion in chapter 11 filings last month, no one expected chapter 11s to continue to climb so precipitously. In fact, with so many chapter 11 cases filed last month, a slight decline in August would have been the norm.

Small business filings under subchapter V of chapter 11 increased by 16.47 percent. If Congress passes pending legislation to raise the debt limit for filing a subchapter V case (see below), then these filings can be expected to climb even more significantly beginning not long after enactment.

Other Creditor News

• What’s up – or down – with interest rates? In a much-anticipated speech on August 22nd, Federal Reserve Chairman Jerome Powell signaled that he and the Fed may be ready to cut interest rates. Chairman Powell told a group of central bankers, economists, and policymakers that “the balance of risks” may be shifting between employment, which may be weakening, and inflation, which remains above target rates. The Fed will base its decision on the latest economic data before the Fed’s Federal Open Market Committee meets on September 16-17 to consider an interest rate adjustment.
• So what would be the effect of lower interest rates on bankruptcy filing rates? The short answer, of course, is that no one knows for sure. Any impact might be counteracted by other economic conditions, including a rise in inflation or unemployment. But here are a few answers shared by many bankruptcy observers:
• The most significant short-term impact would probably be on chapter 11 and other business cases. When the Fed embarked on its pandemic-era rate-cutting, it only took a couple of months for businesses to strengthen and bankruptcy filing rates to drop. But the reductions here may not be so dramatic because, even if interest rates are lowered in September, the Fed is by no means certain to make additional cuts in the future.
• Chapter 13 cases also could be affected over the longer term as homeowners are able to refinance at more affordable rates and avoid filing altogether. Chapter 13 filing rates would probably change less quickly and less significantly than chapter 11.
• Chapter 7 debtors would take advantage of lower credit card and other interest rates, but it would probably take some time for any impact of lower rates to be felt in bankruptcy filing numbers.
• The High Cost of Chapter 11: The Creditor Rights Coalition has analyzed chapter 11 legal fees for the top debtor law firms and found that hourly rates have gone up by 65 percent over the past year. The debtor legal fees now exceed 2.5 percent of the debtor companies’ total liabilities. (www.creditorcoalition.org/weekly-news-august-15.) Additionally, the Financial Times published an eye-opening story on the increased use of out-of-court restructurings to avoid the cost and delays prevalent in chapter 11 bankruptcy case administration. The reporters analyzed several cases, including automobile seller Carvana which “reshuffled its balance sheet” without bankruptcy court oversight and saw its stock soar from $4 to $350. The article also notes, however, that out of court restructurings, which often involve setting groups of creditors against each other, are frequently followed by a chapter 11 filing. (“The demise of the US bankruptcy lawyer,” FT, 8/20/25.)

Watching Congress This Fall

As reported last month, Congress is considering several bankruptcy bills and proposals. As Congress returns from its August recess, there will be a rush to take care of must-pass legislation (including appropriations bills, which are traditionally passed late and sometimes only after a government shutdown). But some bankruptcy reforms may be on the horizon. The legislation most likely to pass is the Bankruptcy Administration Improvement Act of 2025 (BAIA 2025), which provides for an increase in chapter 7 trustee compensation and funding for temporary judgeships. BAIA 2025 has already passed the Senate on unanimous consent. There will also be a push to restore the higher debt limits for subchapter V small businesses and chapter 13 individual debtors. Other proposals include more favorable treatment of student loans and tightening venue requirements.

Upcoming Bankruptcy Rules Change

On December 1, 2025, Federal Rule of Bankruptcy Procedure 3002.1 will be amended to add a new subdivision (f) allowing the debtor or case trustee to file a motion to require the claim-holder of a mortgage debt on a primary residence to inform the parties of the status of any payment deficiencies at almost any point during the case. This rule change will help ensure that debtors, the chapter 13 trustee, court, and stakeholders will know whether the debtor is falling behind. That will help avoid a situation in which a large balance is due at the end of the case and the debtor lacks time to catch up within the statutory time limit. There are other amendments to Rule 3002.1 to clarify and strengthen requirements for notices of payment change and final cure. The rule change is pending in Congress, which can be vetoed before it becomes effective. (www.uscourts.gov/forms-rules/pending-rules-and-forms-amendments.)

Acting Director of USTP

Attorney General Pamela Bondi announced that she selected Ramona Elliott as the Acting Director of the Justice Department’s bankruptcy “watchdog,” the U.S. Trustee Program (USTP). Ms. Elliott is currently the principal Deputy Director and has functioned as USTP head since the ouster of former Director Tara Twomey in March. The official announcement may signal the Attorney General’s high confidence in Ms. Elliott’s performance and a desire for stability in management of the USTP.

Conclusion

The rise in the number of bankruptcy cases filed in August continued unabated. Although increases have moderated a tad, the record of 37 consecutive months with a year-over-year monthly increase reflects an extraordinarily consistent trajectory. Congressional passage of pending legislation to increase debt eligibility limits could spur even more filings for small businesses and individuals who can afford debt repayment plans. On the other hand, if the Fed lowers interest rates, then the number of bankruptcy filings could slow, at least for a while, under some chapters. But, unless inflation cools, employment strengthens, and multiple interest rate cuts are implemented, bankruptcy will likely remain a necessary financial option for increasing numbers of consumers and businesses.